Could the oil price war force U.S Antitrust Laws on Saudi?

Posted: April 2, 2020
Category: Periodicals

Introduction

In 2019, talks on a bill to toddle OPEC was reportedly brewing in the U.S congress, although met by a threat from the Arab Kings to abandon the petrodollar system if congress pushed forward its No Oil Producing and Exporting Cartels (NOPEC) bill. The question is, “Is the current oil price war going to force Antitrust Laws on Saudi”?


Oil Price War

After talks between Saudi Arabia and Russia on a production cut agreement failed, the alliance between both nations reportedly collapsed. Saudi then impulsively went ahead to announce plans to raise its current oil supply of less than 10 million bpd to 12.3 mpd. The kingdom had already begun to offer unusually low prices to foreign purchasers and also declared that it would slash its selling price for the coming month (April) by almost 50%. In response, Russia also announced that it would restore its pre-agreement production beginning in April, which would add about 500,000 bpd to current production rates. While it is believed that Saudi’s price war target is Russia, some analysts also think that the reason Russia refused to agree to deeper cuts was in the hope that its decision would hurt the U.S shale industry.


NOPEC Bill

The NOPEC bill aims to prevent foreign nations and OPEC from working together to coordinate production. The U.S policy makers have allegedly scowled at the OPEC oligopoly which  distorts a free, fair and competitive market.

If the bill is passed into law, the U.S would authorize the Justice Department to sue any transgressors for antitrust violations – by denying those foreign players of sovereign immunity protections.


Conclusion

Chances that the US will enact anti trust laws against Saudi remain slim. The both nations have maintained a good relationship over the years and the recently declared price war does not seem directed to the U.S, but to Russia. 

Secondly, it is hoped that OPEC+ would come to an agreement soon enough seeing the negative impacts that the COVID-19 pandemic is causing on the global oil market. If that happens, there would be significant gains to the market and oil price will bounce back. That said, it is agreed by many (including U.S drillers) that OPEC actually does help to stabilize the market, and having an oligopoly to control the market is not entirely a bad thing.

Thirdly, a NOPEC act given the current state of the market (with rising geopolitical tensions) would do more harm than good, and could in fact lure Saudi into switching away from the dollar to trading for oil in the yuan.


Reference

https://oilprice.com/Energy/Oil-Prices/The-Real-Reason-Oil-Prices-Crashed.html

https://www.jpost.com/middle-east/the-consequences-of-the-saudi-oil-price-war-622876

https://www.cnbc.com/2019/02/08/a-bill-to-hobble-opec-is-advancing-in-congress.html

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